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Twitter takes first step to go public with IPO filing

Men are silhouetted against a video screen with a Twitter logo as they pose with Samsung S3 and S4 smartphones in this photo illustration taken in the central Bosnian town of Zenica on August 14, 2013. REUTERS/Dado Ruvic/Files

By Gerry Shih and Olivia Oran

SAN FRANCISCO/NEW YORK (Reuters) - Twitter Inc has filed for an initial public offering with U.S. regulators, the company said on Thursday, taking the first step toward what would be Silicon Valley's most anticipated debut since Facebook Inc's last year.

The impending IPO of the microblogging phenomenon ignited a competition among Wall Street's biggest names for the prestige of managing its coming-out party. Goldman Sachs is lead underwriter, a source familiar with the matter said on Thursday, which is a major coup for the Wall Street bank.

Twitter filed for an IPO confidentially under a 2012 law intended to help emerging corporations with less than $1 billion (632 million pounds) in revenue go public.

Its debut, though much smaller than Facebook's, could generate tens of millions of dollars in fees from the underwriting mandate itself. Assuming it sells around 10 percent of its shares, or $1 billion (632 million pounds), underwriters could stand to divide a fee pool of $40 million to $50 million, assuming an overall fee cut of 4 percent to 5 percent, according to Freeman & Co.

But the benefits for banks that underwrite the deal would likely be far-reaching.

"Some companies will say, ‘We liked the way you handled Twitter, and we want to come to you first when we do our IPO,'" said David Menlow, president of IPOFinancial.com.

"It's not only bragging rights," Menlow said. "It's getting through the front door, which will line up banks for other transactions done after that, like debt financings and M&A."

Technology bankers at major banks from JPMorgan and Credit Suisse Group AG to Morgan Stanley had vied for coveted lead underwriting roles in the IPO. Several have had informal conversations with the micro-blogging network's management, sources familiar with the matter said.

A similar race is on around China's Alibaba, which is expected to raise more than $15 billion this year. Bank chief executives such as JPMorgan's Jamie Dimon and Citigroup Inc's Michael Corbat have made it a point to meet Alibaba founder Jack Ma.

PHENOM

Seven-year old Twitter, which allows users to send out streams of 140-character messages, has become an indispensable tool to governments, corporations and celebrities seeking to communicate with their audience, and for individuals seeking both news and entertainment.

Twitter, which has been valued by private investors at more than $10 billion, is on track to post $583 million in revenue in 2013, according to advertising consultancy eMarketer.

Max Wolff of Greencrest Capital estimated that Twitter would reach break-even this year, and that it is on track for 40 percent annual growth at a $1 billion annual revenue run rate.

"It's completely conquered mobile. It has an enormous social network. It's becoming a key utility as a second screen to TV and it's literally the first draft of history," Wolff said. "Normally a company like Twitter would have been public for some time."

Twitter is allowed to file its registration statement confidentially due to the Jumpstart Our Business Startups (JOBS) Act, a 2012 law that loosened some of the regulations surrounding the IPO process and other forms of capital raising.

Companies that file under that law do not have to reveal certain details until 21 days before embarking on an investor roadshow.

It could allow Twitter to avoid some of the harsh public scrutiny that other tech companies such as Groupon Inc faced. Groupon in 2011 was plagued by questions about its reliance on what some considered to be unusual accounting practices.